Industrial policy beneficial for growth of SMEs

In the recently organized SME Fair 2022, a private sector think-tank BUILD conducted a perception survey, about 73 SME entrepreneurs responded, among other questions, we asked them whether they are aware about the Industrial Policy 2022, more than 80% informed that they are not aware about the policy.

Those who aware about the policy, most of them are not clear about the benefits of the policy. In view of this, if policies remain in the paper, even time-bound actions included in the policy if not implemented what is the implications of the policy in industrial development. In view of this in a recent dialogue of BUILD on SME Development, participants proposed for upgrading the status of industrial policy to an act and there could be a chapter on each of the important sub sectors, which could have some bindings for implementation. However, the status of the policy it is the dissemination of the benefits of the policies to the concerns and implementation.

Industrial policies can play an innermost role in supporting industrial transformation, diversification and upgrading towards more resilient and competitive industrial development, as well as environment friendly and socially inclusive, industries. Structural change for facilitating and removing obstacles and addressing market failures is another most important objective. Identifying areas to diversify and how and what to upgrade depends on close private-public action through the government policies, as major transformations in the economic structure of a country have occurred with combination of market forces, support from government and contribution of relevant actors.

Industrial policy helps shifting capital towards manufacturing and thus help creating employment establish linkage between small to large, increase economies of scale and ultimately create export opportunities. SMEs operate mostly in the manufacturing sector they benefitted most through Industrial policy and work as a linkage for providing services and intermediate products to the concerned.

The industrial policies in the country passed through several phases depending on the needs of industrial development. The industrial policy (IP) 2022 targeted to increase GDP contribution of industries to 40 per cent by 2027 from 35 per cent targeted in the IP 2016, it was 29 per cent in the IP 2010. There is a gradual increase in the targets, and achievements are also satisfactory. Industry sector contributed 36.01 per cent in 2020-21, increased to 37.07 per cent in 2021-22 as per economic review 2022. However, industry share as per 8th FYP targeted to reach 41.86 percent of GDP by 2025, while it is targeted at 40 per cent by 2027 by IP 2022.

As per the economic review 2022, growth in the manufacturing sector, large scale industries is 12.87 per cent, small and medium 11.71 per cent and cottage is 11.75 per cent. The growth indices of garments is 33.91 per cent, textile 24.1 per cent and leather and leather goods 43.1 per cent (during July-Dec 2021-11 over 2020-2021). It means manufacturing sector mostly based on Textile and RMG and leather, there are other emerging sub-sectors such as steel and iron, cement, jute etc. Recent LDC Report 2022 by UNCTAD has defined sunset and sunrise industries, sunset industries are comparatively more polluting and less technology-intensive, RMG, Leather can be some examples. In case of preparing Industrial Policies these type of technology-oriented transformation may also be taken care.

In the earlier policy (2016), CMSMEs were identified as the main driving force, establishment and diversification of export oriented industries, development of specialized industries through optimal utilization of local resources, opportunities for women entrepreneurs(WE), legal and infrastructural facilities to encourage investment were some other goals. It is seen that export diversification, more emphasis on FDI, thrust on 4IR are present thrust for industrial policies.

The new policy has several strategies with time-bound action plans for a dynamic, skilled industry and service sector, additional priority has been given for less developed areas so that supply of raw materials for export oriented industries can be ensured for more value addition. Capability for technology and 4IR adaptation and challenges; skilled manpower development, export diversification and new market exploration are priorities. In order to attract local and foreign investment simplification of administrative procedures, allowing industrial park, EZ and other infrastructural services will be extended. Bilateral, regional and multilateral trade agreement in collaboration with national and international organization, encouraging women entrepreneurs, financing support to cottage, micro, small and medium enterprises, capability development for private sector for sustenance in case of natural and anthropogenic calamity, import substitute industry and back ward and forward linkage industries and in that respect support to light engineering sector have been announced.

Plunge on informal sector and announced that they will be registered and specific national time-bound action plan will be prepared. A list of activities for formalization of informal establishments has been planned which is a good initiative, however, it would be a difficult task as the informal entrepreneurs are not aware about the full benefits of formalization and afraid stringent administrative procedures which requires cost and time. Implementation of policies also needs attention.

Industrial policy also for the first time announced some initiatives for start-ups and how to create an enabling environment for them. In that respect BSCIC, SMEF will work for creating new entrepreneurs, providing support services, advisory services; one stop services in BSCIC centres, training for them and specially encourage ICT-based entrepreneurship. This is an encouraging step, however, confidence on BSCIC has to be revisited in each and every districts.

As like as the previous policies women entrepreneurs (WE) are encouraged to develop entrepreneurship, there are assurance of collateral free loans. Main constraints raised by the WE is finance, there are a number of financial schemes announced by the Bangladesh Bank for WE, however for any discrete reasons WEs are not getting funding.

The policy has given push for industrialization in the backward places and special incentives for them. Reforms and management of State owned enterprises, increase productivity for global competitiveness, quality of products and intellectual property, special incentives for import substitute industries , encouragement of non-resident Bangladesh, diversification of industrial goods, export oriented industries, encouraging foreign investment, technology development and expansion and 4IR, environmental issues for waste management, skill development and research and development.

As per Global Industrial Performance Index (GII) 2021, Bangladesh Ranks 70 out of 152 countries in 2020. Malaysia ranks 23 while Vietnam Ranks 38, Indonesia 39. Vietnam is very close to Indonesia. Bangladesh would need to work hard to improve its ranking. Industrial Policy should have specific targets to improve rankings in GII. Bangladesh’s (105) ranking in Global Competitiveness Index (GCI) is also not promising, score of Vietnam (67) and Malaysia (27) are much better. GCI ranks a number institutional, infrastructural, skill development, ICT adoption, labour market, product market, financial system etc, some of which have been included in the IP 2022, however, action- oriented targets to be implemented by different organization needs proper monitoring.

Labor productivity of Bangladesh is behind those ASEAN countries. Targeted annual average productivity growth rate is 5.6 per cent for Bangladesh for the period 2021–31(National Productivity Master Plan FY21-F30), national productivity growth rate averaged 3.8 per cent between 1995 & 2016 while in Vietnam by 2030, and the average growth rate of labor productivity is targeted as 7.5 per cent in the industrial sector.

According to Malaysian Industrial Policy -2018, the manufacturing industry’s contribution will be raised by 54% by 2025. According to Vietnam’s industrial Policy 2020, by 2030, the industrial sector will make up over 40% of GDP. While preparing industrial policy, Bangladesh can also follow the example of other Asian countries.

Bangladesh is going to face graduation challenges, some of these are; loss because of LDC-ISMs, concessional loans, cash incentives/subsidies, tariff rationalization will be required. Export Diversification is far away- as policy support is discriminatory and sector-specific, Cottage, Micro and Small (CMS) enterprises are the main employment creating agencies-are not getting proper attention, logistics costs is the highest in the country, lead time is high. Digitalization and FDI are two primary requirements; Bangladesh is much behind in comparison with other countries. FDI is concentrated in a few sectors, few destination- needs diversification, we do not have updated FDI Policy, business confidence is at low stage. Poor data management and inconsistencies, lack of trained manpower, quality of education hampering growth and SME development. Policies are good, however its implementation mechanism and strategies should be focused and time-bound.

The writer is CEO of BUILD a Public Private Dialogue Platform. She can be contacted at [email protected]